Question
LaurelLimited purchased 40,000 common shares of HardyCorp for $800,000. During the year, HardyCorp reported net incomeof $200,000 and paid total dividends of $90,000. The fair
LaurelLimited purchased 40,000 common shares of HardyCorp for $800,000. During the year, HardyCorp reported net incomeof $200,000 and paid total dividends of $90,000. The fair value of the shares on Dec. 31 was $820,000.Instructions(a)Assumethat the 40,000 shares represent a 10% interest in Hardy Corp and LaurelCorp has purchased this investment to generate capitalgains:(8marks)1.How should this investment be classified and accounted for?2.Prepare the journal entry to record Laurels investment in Hardyshares.3.Prepare any entries that Laurelshould make in accounting for its investment in Hardyshares during the year.4.What is the balance of the investment account on Laurel's books at December 31?(b)Repeat requirement (a) above except assume that the 40,000 shares represent a 40% interest in HardyCorp.(8marks
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